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Three Technicals to Watch Today

Talking Numbers
  1. US Dollar: The dollar is having a bullish breakout from an 18-month trading range. The Dollar Index is testing its highest levels since July 2012. This potentially has bearish implications for both stocks and commodities. While both stocks and the dollar have been positively correlated, rising together throughout the majority of 2013, over the past five years they have largely displayed an inverse correlation and are moving in opposite directions. In so far as the strength in the dollar can be viewed as a reflection of a strengthening US economy, the downside to dollar strength is that it creates a bearish headwind for US multinationals. Those corporations generate a large portion of sales overseas and must bring those profits back to the US. In essence, they must now purchase dollars at a higher price. Of course dollar denominated commodities like gold, silver and crude oil will also feel the pain of the dollar’s gain as foreign buyers of commodities find their purchasing power sapped by their declining local currencies.
  2. Gold and Silver: As discussed above, the surging dollar is weighing on gold, with the yellow metal down 1% in early trading. It is testing that key psychological support at the $1,400 per ounce level. In addition, silver has violated the $23 level, trading down 2% as well. With gold and silver down 16% and 24% respectively year-to-date, the surge in the dollar couldn’t come at a worse time for the metals.
  3. Deere & Co.: The bellwether US farm equipment maker reported disappointing earnings and the stock is down almost 4% in pre-opening. Shares have been on a tear, climbing over 13% since mid-April. It will be interesting from a broader market perspective to see how investors react to the miss. If they view the early decline as a buying opportunity, it will reinforce that bullish backdrop for equities. Conversely, should investors continue to bail and push this stock lower throughout the day, it might suggest that this rally is not quite as indestructible as it appears.

--Rich Ross, Global Technical Strategist, Auerbach Grayson